by Zachariah Bryan June 4th, 2012
On the rural coast of Washington in Pacific County, a small but vital critical-care, taxpayer-funded hospital has new interim leadership trying to dig its way out of financial problems that threaten its survival, including a four-fold increase in operating losses from 2007 through 2011. Ocean Beach Hospital in Ilwaco, Wash. is run by Pacific County Public Hospital District No. 3, which was founded in 1995 and also operates a clinic in Ilwaco and another in nearby Naselle.
The district is one of dozens of relatively obscure public bodies in the state which use taxpayer funds to run hospitals, water and irrigation systems, public power utilities, and cemeteries. For the year-round population of the regional tourist mecca known as the Long Beach Peninsula – which includes the town of Long Beach, the fishing port of Ilwaco to its south, and neighboring communities – the district provides emergency and medical care, as well as surgery, and lab and radiology services. The district is overseen by a five-member, elected board of directors. It is managed by executive staff and employs about 170.
Public hospital district is bailing water from its fiscal boat
An accountability report released May 21 by Washington State Auditor Brian Sonntag revealed that the hospital district ended calendar year 2011 about $2 million in debt, and ran at an operating loss of $2.5 million while struggling to collect monies owed. Hospital sources note the facility currently lacks a staff chief surgeon and chief financial officer. Its CEO resigned earlier this year, and an interim leader stepped in. As of March 31, 2012 the district – which in 2011 had operating expenditures of $23,803,700 and operating revenues of $21,256,355 – saw its reserves dwindle to just $91,500. At that same milepost just two months ago, the district owed $2,131,171 to creditors.
The audit stated, “it does not appear the District has sufficient cash to pay these obligations” because “the District Board did not take action to cut expenses in relation to the decrease in revenues when actual revenues did not meet budgeted revenues.”
Interim CEO working to cut debt
But under Interim Chief Executive Officer (CEO) Terry Finklein the hospital has since trimmed its debt to about $1.3 million, spokeswoman Geri Marcus said. Finklein was CEO of Columbia Memorial Hospital (CMH) in Astoria, Ore. for over 20 years until he retired at the end of 2009. He became interim CEO of Ocean Beach Hospital in March, 2012 after Joe Devin resigned as CEO.
The hospital’s fiscal problems have been brewing for several years
A 2007 state audit warned, “a lack of consistent provider staffing, such as primary care physicians and general surgeons, helped lead to the decline in the District’s financial position,” with the effect that “the District lacked the necessary cash flow to meet daily operating expenses.” It added that management needed to “closely monitor cash flow.”
Operating losses grow four-fold from ‘07 through ‘11
Yet the May 2012 state audit shows that the hospital district’s operating losses grew from about $623,000 in 2007 to more than $2.5 million in 2011. The hospital has had problems collecting accounts receivable in a timely manner from insurance companies, Medicaid and patients. In July 2011 The Chinook Observer reported the hospital had $4.8 million outstanding in accounts receivable and at the time, management was unsure if payments to payroll could even be made. More recently, the state audit found that turnover in the district’s accounts receivable office caused a delay in the collections process, resulting in $800,000 not being sent to collections in a timely manner.
Additionally, Ocean Beach Hospital has had trouble attracting and keeping a general surgeon, and other key medical personnel, resorting to hiring costly temporary medical staff. And the district has not had a chief financial officer (CFO) since August 2011. Finklein said in an update published in The Chinook Observer that he is collaborating with Columbia Memorial Hospital to bring over Dr. Edouard Deret two days a week to practice general surgery. And Finklein wants the new CEO, when hired, to choose a CFO, Marcus said.
Will rescue mission work?
In response to the audit, Finklein said he has enacted an aggressive recovery plan: terminating unfavorable contracts, tightening controls on spending, focusing attention on billing and collection, cross-utilizing staff and reducing the district’s work force by approximately 20 percent. Work force reduction recently included cutting seven management positions, which in an Observer column Finklein said was “a very sad but necessary transition for the hospital.” Six to seven employees had already been laid off in February as part of another jobs reduction move. The hospital has also worked with banking partners, refinancing loans and reducing payment amounts. According to Finklein’s response in the recent state audit, the recovery plan has so far amounted to over $2,000,000 in annual savings, with more savings to come. He admits that it is a work in progress and that the hospital is in a “deep financial hole.”
The hospital recently received one of its twice-yearly property tax payments plus a fire insurance settlement claim of $108,000, after an electrical fire burned medical records but harmed no one, the Observer reported. Finklein used the newfound money to retire the oldest payable accounts, focusing on paying off local vendors first. There was also enough money for payroll, the hospital’s biggest expense, which totaled $825,000 in March.
Non-taxpayer revenue is especially important for public hospital districts in Washington State. The statewide association of public hospital districts in Washington notes on its website that “income from property tax levies is a relatively small component of a public hospital district’s total revenue stream—the vast majority of income to public hospital districts is derived from the sale of services. In 2009, the public hospital district most dependent on property taxes received less than 7% of its annual operating revenue from those taxes.”
Columbia Memorial, almost twenty miles away, across the Columbia River in Astoria, is the nearest other hospital.